The Survey Says: Detroit is Flexing its Financial Muscles Again

When Detroit filed for Chapter 9 bankruptcy on July 18, 2013, it was the largest municipal bankruptcy filing in U.S. history. The bankruptcy court calculated Detroit to be $18.5 billion in debt.

Detroit’s most immediate challenge was its required contributions to its major employee pension funds. Meeting that obligation would require drastic cuts to city services – police, fire, transportation, education – accelerating a half-century trend that saw the city’s population shrink from a peak of 1.8 million in 1950 to approximately 700,000 at the time of the Chapter 9 filing.

The odds of Detroit exiting bankruptcy without further degrading its municipal services appeared long, and some saw Detroit as a harbinger of future financial crises awaiting other American manufacturing cities – Buffalo, Chicago, Cleveland, St. Louis – similarly burdened by debt and the flight of business.

Then something very special happened. A consortium of the city’s major foundations pledged to pay off the pension obligations, collecting a total $366 million, with almost a third ($100 million) contributed by The Kresge Foundation. The only string attached was that this money would be met by contributions from private sector companies, state government, and the public employee unions. The unions would give up various benefits, such as cost-of-living increases, and accept a 4.5 percent reduction in pension payments. This became known as the “Grand Bargain,” and the courts approved the plan. Detroit was on its way to emerging from bankruptcy, which it did on December 10, 2014.

Detroit’s quick exit from bankruptcy took people by surprise. In fact, many outside Detroit were not really aware that Detroit had emerged, financially whole and ready to do business. In a survey of national senior business leaders conducted by FTI Consulting in November 2015, only 24% knew that Detroit had exited bankruptcy, and 16% thought it was still in it.

The Kresge Foundation, which was founded in 1924 by Detroiter Sebastian Kresge – who co-founded the nation’s first 5-and-10 store (which would eventually become Kmart, with which the Foundation is not affiliated) – understood that Detroit needed to let the world know that it was it open for business. To help get the word out, and to assess the business world’s perceptions of post-bankruptcy Detroit, The Kresge Foundation turned to FTI Consulting.

Taking the Temperature of the Business Community

The Kresge Foundation is by far the biggest grant maker to Detroit, but Kresge Foundation President Rip Rapson knew that philanthropy would only take Detroit so far, and that exiting bankruptcy was only the first step to getting Detroit back on the road to prosperity. He knew perceptions had to change. Federal and state government needed assurance that their investments would be spent wisely. And the national business community needed to know that Detroit was a good place to invest.

That’s why The Kresge Foundation engaged FTI Consulting to measure the perception of Detroit among America’s business leaders, and compare those attitudes to other American cities. As a first step, in 2015 FTI Consulting designed and conducted an online survey between November 6 and November 15 of 307 American senior business leaders of large and mid-sized companies with at least 250 employees. These were leaders with direct influence on their companies’ high-level decisions, and operational responsibilities for contracting, purchasing, sales, and related functions.

Key Findings: Advantages and Obstacles

The Kresge Foundation released the results of the Detroit Reinvestment Index in April 2016. Rapson said the survey’s findings indicated that business was “very bullish on Detroit,” but noted that the city still had work to do to attract investment. Most notably, 84% of business leaders said they were confident Detroit can become great again, and 71% currently saw it as a good place to invest.

But business leaders also thought Detroit still had more work to do. It needed to offer lower taxes, demonstrate effective local governance, and generate a healthy municipal balance sheet.

Going forward, business leaders reported the keys to Detroit’s success would need to be (in descending order of importance):

A turnaround of the auto industry

Implementation of innovative approaches to urban development

The emergence of new industries

An economic recovery shared by all racial and ethnic groups

A commitment to financially sound budgetary practices

The survey also found:

When thinking about what makes a city an attractive place to invest, business leaders cite (in descending order of importance:

Low taxes

An effective local government

A clean municipal balance sheet (no major city debts)

High levels of community service

An effective foundation and philanthropic sector

The Motor Starts Up

The data from this survey has proved invaluable in shaping the Detroit Future City plan – a framework for Detroit, guided and supported by The Kresge Foundation – which will identify potential areas for job growth; devise alternative uses for vacant and abandoned buildings and land; develop the green spaces that a thriving, creative new workforce values, and seek to optimize the potential of all the city’s neighborhoods.